East Asia: Trade Regime critical for Economic Stability and Political Security


East Asia: Trade Regime critical for Economic Stability and Political Security

by  EAF Editorial Group

What the Trump Administration will ultimately do to the shape of the global trade regime is difficult to foretell but there’s no question that it will change it forever, even if there is strong global push-back against Trump’s threat to unravel trade agreements and carry a protectionist stick.

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The trade regime, and the way in which it encourages open trade and international interdependence among those who sign on to its rules, is not simply an instrument of economic policy strategy that can be changed without political consequence. For most countries, and certainly those in East Asia which are so dependent on open trade to sustain their basic livelihood, the trade regime is a critical instrument of political security.

Trump has already signed executive orders to withdraw the United States from the Trans-Pacific Partnership (TPP) and renegotiate the North American Free Trade Agreement (NAFTA). What appeared noisy campaign rhetoric has been transformed into concrete action.

Trump’s withdrawal from the TPP is no big deal in itself: with the exception of what it promised in terms of liberalisation of the Japanese economy, the economic effects of the deal that was on the table were oversold. Even renegotiation of NAFTA may have more limited economic consequences than have been threatened. But these steps, together with the threat of punitive tariffs on imports from China and Mexico, plus a total retreat from multilateral or regional trade agreements, tears at the core principles upon which the US supported postwar economic order had been built.

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POTUS Donald J. Trump and China’s President Xi

Anyone who says that a switch of this magnitude and direction in the trade policy strategy of the world’s largest economy and second-largest international trader is of little consequence is seriously delusional. The old certainties that brought prosperity and a significant measure of stability to world affairs for nearly three-quarters of a century after the Second World War are under serious threat.

A world in which the defining characteristic is a lot of bilateral trade agreements rather than one in which multilateral and regional frameworks are predominant imposes costs on business and consumers alike because of the need for compliance with different rules of treatment across different trading partners. It also injects a different tone into international politics. These concerns are what motivates the argument for regional and global trade regimes that govern international flows of goods and services through unified rules and standards.

The broader the framework within which trade can take place, the greater will be the scope for division of labour and the higher the gains from international trade. Bilateral trade deals can’t replicate the gains from regional and multilateral agreement, and they will unhelpfully cut across global and regional value chains. As the largest centre of production networks, East Asia has much at stake in the push back against an open, global rules-based trading system and the regional arrangements that support it.

While the direct economic costs of Trump turning America’s back on the TPP and other measures might be relatively small, the systemic costs are much larger.

As Shiro Armstrong and Amy King write in this week’s lead essay, Trump’s executive order to withdraw the United States from the TPP agreement in the Asia Pacific ‘is a strategic turning point in the open economic order. It is a blow to furthering reform for some members, a lost opportunity for the United States to write the rules of international commerce, and more worryingly a sign of the United States turning its back on the global economic system it helped create and lead’.

How can East Asia, which includes China and Japan — the world’s largest and fourth-largest trading nations — stand against the corrosion of a global trading order that is so central to their common economic and political interests?

The economies of East Asia must, of course, stand quietly firm in global and regional forums and in all their bilateral representations to the United States against the undermining of the global trading system, giving strength to those forces in America that can help to shape much better outcomes than the present circumstances threaten. But, through their own commitment to collective liberalisation and reform, they can also help to lead the system back from the brink.

With major multilateral trade deals at the WTO now too difficult and bilaterals only able to make slow and incomplete progress towards freer markets, Armstrong and King observe, all eyes now turn to Asia’s Regional Comprehensive Economic Partnership (RCEP) agreement. It is the most important initiative on the global trade scene.

Image result for flags of asean member statesASEAN is the hub of RCEP Agreement

RCEP comprises the 10 Southeast Asian members of ASEAN as well as Australia, China, India, Japan, New Zealand and South Korea. Though, as Armstrong and King say, there are many misconceptions about the RCEP enterprise.

‘The first misconception is that RCEP is China-led. But China is a spoke and ASEAN is the hub of the arrangement. RCEP was built to consolidate ASEAN’s five separate free trade agreements with China, South Korea, Japan, India and Australia–New Zealand. And the RCEP idea and its guiding principles were crafted not in China, but in Indonesia. ASEAN centrality has ensured that RCEP has incorporated Asia’s other large power — Japan — and reflects Japanese preferences as much as those of China. Originally, China wanted to limit core membership of Asian cooperation to ASEAN plus China, Japan and South Korea. Japan wanted a larger membership, involving Australia, New Zealand and India, to help provide a counterweight to China’.

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In the end, ASEAN centrality and the interests of Australia and India in the region meant a broader and representative group ideally placed to take the lead collectively on global trade.

‘With the world trading system under threat’, as Armstrong and King conclude, ‘it is time for leaders in Asia to step up and push for opening markets and deepening reforms to enhance economic integration, not just with each other but with Europe, the United States and the rest of the world’.

*The EAF Editorial Group is composed of Peter Drysdale, Shiro Armstrong, Ben Ascione, Ryan Manuel, Amy King and Jillian Mowbray-Tsutsumi and is located in the Crawford School of Public Policy in the ANU College of Asia and the Pacific.

http://www.eastasiaforum.org/2017/02/20/east-asias-agreement-to-keep-the-world-economy-open/

50 Year Old ASEAN–No Longer Business As Usual


February 10, 2017

50 Year Old ASEAN–No Longer Business As Usual

by Dr. Munir Majid@www.thestar.com.my

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IT is not business as usual. As ASEAN’s array of official and private sector meetings roll out for the year, urgent thought must be given to dramatically new challenges beyond the stubborn issues that continue to arrest the region’s meaningful integration.

The advent of Donald Trump as President of the United States has overturned many regional assumptions and threatens to cause economic as well as political turmoil. These developments should make ASEAN think crisis management – even if, in the end, the worst does not happen.

There are a number of “what ifs” which should be addressed.What if Trump causes a trade war to break out between America and China by imposing the punitive import duties on Chinese goods that he has threatened?

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It will then not be a simple outcome of relocation of manufacturing centres from China to low-cost Vietnam, for instance, as some have rather sanguinely suggested. The supply chains to which many ASEAN exports are linked for the finished Chinese product would be broken. There will be export disruption – not just for China.

There are countries in ASEAN, apart from Vietnam (90%), like Singapore (176%), Thailand (69%) and Malaysia (71%) whose exports amount to a substantial proportion of their GDP.

On top of exports through China, their own direct exports to the US will also be affected, as will any relocated exports from Vietnam.

There will be no winners in a trade war, no benefits to be derived from China’s apparently singular predicament. The knock-on effect will be widespread. In time, as excess capacity looks for export sales, dumping will become a problem, as will protection against it.

Motor cars that cannot get into America will have to go somewhere. Steel turned away from the US as Trump seeks to protect mills and jobs in the mid-west will have to be shipped somewhere else. Even the textile industry will be spinning in different directions as Trump has promised to revive it in America.

The whole global free trade ecosystem will go topsy-turvy. How will free trade within the ASEAN Economic Community, such as it is, be maintained? Can ASEAN+6 move on to the Regional Comprehensive Economic Partnership (RCEP) as the fallout from Trump’s America First trade policy hits the world?

Asia – and ASEAN – will have to stick together and carry on with the open, albeit reduced, global free trade and investment system. Will that happen?

Some ASEAN states with larger domestic economies are less dependent on international trade than others. Already, now, they take a different position on opening up their market. Will it get worse in the situation of stress, should it come about?

ASEAN must talk about these possibilities now, before they happen. Someone must take the lead. Too often this does not happen in ASEAN. Can the officials, or the secretariat, or the private sector do this scenario-setting for the ministers, for the leaders? Or is ASEAN going to carry on as if everything is not changing around it?

I am reminded of what George Orwell has been said to have remarked: In a time of universal deceit, telling the truth is a revolutionary act. The tendency to take to the ASEAN level what routinely happens in many ASEAN domestic systems should be snapped. Some functionary in ASEAN must warn the regional grouping of the dire threat facing it.

The other challenge facing Asia and ASEAN is the risk Trump poses to regional peace and stability. This comes from the challenge again thrown at China, this time in respect of its claim to the South China Sea. As China’s predominance in the disputed expanse of territory is by no means ideal, its exposure to a more counter-assertive and belligerent American stance under Trump – no Chinese access to islands artificial or militarised that do not belong to China “under international law” – may encourage claimant ASEAN states to be less compliant with the China-set path of dispute management.

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Since the law of the sea tribunal decision last July, there has been a lowering of temperature in the South China Sea dispute, even if at the cost of not highlighting the baselessness and futility of China’s claims under international law. The return has been a commitment by China in the diplomatic channeling with ASEAN to having a code of conduct (COC) finally in place this year – although only in framework form.

It has been a long-term ASEAN objective to have this COC for peaceful conduct in the South China Sea. China has hitherto been dragging its feet on this. With a more assertive American policy against China, would there be among ASEAN states a disposition to push with the US to get a better deal on the South China Sea?

This kind of geopolitical arbitrage may be attractive, but it would come at a longer-term cost to regional cooperation, which has become critical because of Trump’s foreign economic and trade policies. This is a dilemma ASEAN states would do well to address together.

Already, beyond ASEAN, India appears attracted to taking advantage of the predicament China might be in with Trump. India, of course, has long-standing border disputes with China, which Beijing has been happy to keep unresolved. At the same time, there is strategic competition between the two over their regional place in Asia.

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Another could be Japan which, again, has many unresolved disputes and issues with China. India, in particular, appears to want to flirt with Trump even at the cost of frustrating conclusion of the RCEP. The cost to India, however, could be isolation from the Asia-Pacific region for an uncertain alliance with Trump’s America.

You cannot do strategy with a counter-party whose leitmotif is transactional. With Trump it is not going to be win-win. It is going to be win-win-win for America.

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Trump’s Win For America First Foreign Policy

ASEAN states should want to address these profound issues. Even dissuade member and partner countries from wanting to sup with the devil, as it were.

China, of course, has not been the ideal big country partner beyond platitudinous statements and suffocation of ASEAN by money. Its actions in the South China Sea are not indicative of a great power that will not grind your face in the dirt if you did not do its bidding.

Will China become the good big brother it claims it wants to be, even as America becomes the bad and ugly one?

It looks like ASEAN might be caught between a rock and a hard place. Individual member states no doubt will be doing their calculation with the hope to position themselves in a better than survival mode.

However they will all be better off if they also worked together among themselves and partnered Asia-Pacific countries to achieve better economic integration, whose benefit will discourage them from playing dangerous geopolitical games.

So, as ASEAN under Philippines leadership looks at themes such as inclusive growth, an excellent focus, and addresses the many stubborn issues that are barriers to better integration, it must prepare also for the very difficult economic and political environment which will be fashioned by the Trump administration.

Tan Sri Munir Majid, Chairman of Bank Muamalat and visiting senior fellow at LSE IDEAS (Centre for International Affairs, Diplomacy and Strategy), is also chairman of CIMB ASEAN Research Institute.

 

Trump and Southeast Asia: Advantage China


November 12, 2016

Trump and Southeast Asia: Advantage China

by Tom Pepinsky

Tom Pepinsky is an associate professor in the government department and a faculty member of the Southeast Asia Program at Cornell University. He studies comparative politics and political economy, with a focus on emerging market economies in Southeast Asia. Read his blog at https://tompepinsky.com/

The days of a US administration that engaged substantively with Southeast Asia are soon to be over, writes Tom Pepinsky.

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Defying the expectations of nearly every US pollster and most mainstream pundits, Donald Trump has defeated Hillary Rodham Clinton in the 2016 presidential election.

As Americans adapt to the reality of Mr Trump’s victory, analysts are devoting particular attention to his foreign policy plans. For readers of New Mandala, and for half a billion Southeast Asians, the urgent question is what Mr Trump’s presidency will mean for Southeast Asia, and for US relations with the region.

Answering that question requires an understanding of the powers that US presidents have. Like in many other presidential systems, the US president does not make laws. Doing so requires legislative action. On issues of foreign policy, however, the US president has significant individual discretion to build a foreign policy team of his or her liking, and to pursue a relatively independent foreign policy accordingly.

On foreign policy issues, Mr Trump’s campaign rhetoric was bombastic, aggressive, and often self-contradictory. He has encouraged nuclear proliferation in Northeast Asia and the Middle East. He favours policies that could start a trade war with China. He has promised to build a wall with Mexico, and suggested policies that would abrogate US treaty commitments with NATO. His personal infatuation with Russian president Vladimir Putin is simply bizarre.

If there is any unifying theme, though, it is a move towards isolationism. His foreign policy outlook, as sketchy as it might be, is one that prioritises military strength, opposes foreign military adventurism, redresses what he perceives to be exploitative trade relations, and is profoundly wary of immigrants, especially Muslims and Mexicans. It is a view that resonates with the roughly one-quarter of the US electorate who voted for him.

How would such a US foreign policy affect Southeast Asia? Before proceeding, a very significant caveat is in order.

Prior to Tuesday evening, most American pundits and foreign policy analysts had not taken a Trump presidency seriously enough to consider what he might do in office, and especially what his foreign policy team might do. To my knowledge, there was hardly any of the normal jockeying among the Washington foreign policy establishment to shape Mr Trump’s foreign policy platform. This jockeying is only now happening; the same is true, incidentally, for his national security team.

This means that any predictions are tentative, and should be taken as such. They are the best that can be done in a situation with no precedent and fast-moving developments from a candidate who is both secretive and mercurial. With this caveat aside, two scenarios seem especially important to consider.

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One is a scenario in which Mr Trump pursues his isolationist line that asks Japan and South Korea to take greater responsibilities in regional security in Northeast Asia. This would have implications for regional security across the Asia-Pacific. In such a scenario, Southeast Asian countries—treaty allies (Philippines, Thailand) and new security partners (Vietnam) alike—might expect similar treatment, asked to shoulder a greater burden in providing for their own security.

But because Southeast Asian countries have weaker militaries and are more dependent on trade with China, their incentives would be to avoid confrontation with a far more powerful regional hegemon if they do not believe that a Trump administration would defend their strategic interests.

Another is a scenario in which Mr Trump respects security policy precedent but pursues a more aggressive anti-China stance on economic matters. Trade barriers, for example, might interrupt trans-Pacific trade flows. The consequences for Southeast Asia are hard to predict, but could include either a regional slowdown in trade, or alternatively an ever greater role for Southeast Asia as a trading partner for China.

Separate from these scenarios, and focusing on economic matters, what seems more likely is the end of the Trans-Pacific Partnership, which was opposed by both Trump and Clinton during the general election campaign. This would be a major setback for its signatories in Southeast Asia (Brunei, Malaysia, Singapore, and Vietnam). It would force these countries to rebalance their trade relations, perhaps with advanced economies like Japan and the EU, or perhaps with rising powers like China and India.

Some analysts privately believed that TPP, like NAFTA and other trade agreements, might actually survive under a Trump presidency, on the notion that US presidents tend to favor trade once in office, and that Mr Trump, a wealthy Republican, simply does not care about TPP but was willing to use it to win an election. Taking his word at face value, however, suggests a decisive move towards protectionism. Withdrawal from TPP is an agenda item for his first 100 days in office.

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The frustrating conclusion is that it hard to know what the next four years will mean for Southeast Asia with Mr Trump in office. Because Southeast Asia presents few acute security or economic challenges at the moment, the region may be fortunate enough to see business as usual, with career diplomats in ambassadorial positions, trade and investment continuing, military-to-military cooperation as before.

But even if business continued as usual, the scenarios outlined above would still have indirect effects on Southeast Asian countries’ security and economic interests.

One thing is almost certain, however: the days of a US administration that engaged substantively with Southeast Asia are soon to be over. President Barack Obama’s “Pivot to Asia” meant that his administration considered the region to be one of core strategic interest. Given his personal ties to Indonesia, Southeast Asia has figured relatively prominently.

It is hard to imagine that Mr Trump cares enough about Southeast Asia to match President Obama’s level of engagement.

Tom Pepinsky is Associate Professor of Government at Cornell University and blogs here.

http://www.newmandala.org/president-trump-southeast-asia/

The Hopeful Alternative: A “Brivot” to Asia may now be in order for Britain


July 10, 2016

The Hopeful Alternative: A “Brivot” to Asia may now be in order for Britain

by Bunn Nagara

http://www.thestar.com.my

Instead of being the end of the good old EU days, Brexit may just be the beginning of Britain’s new productive relations in Asia.

FROM the start, arguments over Brexit had been skewed on several fronts. Mainstream international media tends to be negative about Britain’s exit from the EU. The ills of withdrawal are often seen to overshadow the benefits.

Since a majority of Britons voted for Brexit for distinct reasons, why do media reports fail to portray its benefits – whether substantive or perceived – at least half the time? This may be due to corporate media interests, since EU regional integration favours them over those of small and medium enterprises (SMEs) disproportionately saddled with the costs of EU regulations.

 There is also the secondary causality factor, or “opprobrium by association”. For example, Donald Trump – seen as inhospitable to migrants from minority communities – mistakenly endorses Brexit for shutting out immigrants, so those who consider themselves more liberal on immigration policy reject Brexit for being “xenophobic”.

EU membership in fact discriminates in favour of mainly white European migrants and job-seekers, against those from other continents and even Commonwealth countries.

What’s Up, Mr.Churchill

http://www.usnews.com/news/articles/2016-06-28/how-britain-could-undo-the-brexit

Disentangling itself from the EU allows Britain to form new associations and develop old ones with other countries independently. Prime Minister David Cameron and former Defence Minister Dr Liam Fox mentioned the Commonwealth countries as being among them.

Third, the media disinclination to Brexit may also be caused by the lack of quantifiable benefits, real or anticipated, readily shaped into prime time sound bites. It is much easier to cite the trade volumes Britain may lose in Europe than the greater democratic prerogatives that Britons would enjoy.

Yet even this does not explain the common bias against Brexit. The anticipated or presumed losses, however detailed in numbers, are no more than projections and extrapolations since Britain has yet to leave.

Since both the costs and benefits of Brexit are equally notional or hypothetical, they should be entitled to equal time. But pro-Brexit hopes, aspirations and promise are not entertained anywhere as much as anti-Brexit doom, gloom and warnings.

Even champions of Brexit have been distracted from their primary task in having to defend their position against critics. They might have argued that Britain’s best years were before joining the European project, while many an EU country has seen its worst years after joining it.

The reasons for the rise and fall of European powers are complex and need not directly implicate the EU. But the fact that for decades “Europe” has failed to arrest and reverse the decline of once-mighty colonial powers seems to testify to the EU’s limits.

For now the bigger questions are: must Brexit mean assured decline for Britain, and are there no silver linings at all? EU ideology aside, Brexit can have tangible benefits and some are already emerging.

On July 7, the Wall Street Journal reported that the plunge in interest rates caused by Brexit has produced a spike in US mortgage refinancing. Mortgage rates have fallen along with long-term rates. An index of refinancing activity for the week ending July 1 rose 21%, the highest in 18 months.

On the same day, Associated Press reported that European stock markets rallied in anticipation of the US Federal Reserve holding off on raising interest rates. The lower rates may hold until next year.

Politically, British-US relations are likely to improve as well without a European “filter”. Their “special relationship” is unfazed by Brexit and may grow in the absence of continental encumbrances.

British Secretary of State for Business, Innovation and Skills Sajid Javid is already on a five-nation tour to discuss new and improved trading arrangements.

His first destination was India, which has huge investments in Britain. India’s growth is no less than China’s at some 7%, at a time when all other emerging economies are slowing.

India is already the third-biggest foreign investor (fdi) in Britain, and may soon tie with France for second place. Over the last decade the number of British companies operating in India grew 300%. Today, more than 800 Indian companies in Britain employ well over 110,000 people, while British companies in India employ about 691,000 people. All of this is set to grow on both sides.

Other Commonwealth countries in South Asia are Bangladesh, Pakistan and Sri Lanka. Although many Commonwealth members are small with little economic heft, the major countries in South Asia are in it.

The other countries on Sajid’s list are China, Japan, South Korea and the US. All major economies in North-East Asia are covered, including the world’s second- and third-biggest.

Despite the relative decline in China’s growth data, it is still the world’s most promising economy over the longer term. Vastly improved trade with China remains the grand bargain of many developed countries, particularly those in Europe.

As the jewel in Britain’s mercantile “crown” for centuries, trade with China is not to be underestimated. It was the prime reason for Imperial Britain’s involvement in the “Far East,” including Borneo (Brunei, Sarawak, British North Borneo or Sabah) as a convenient way station for sailing ships to Chinese ports.

Centuries ago, European countries were so strong that they competed among themselves for overseas territories as colonial possessions. Today, the EU is desperately holding them together to prevent many an individual slide into history’s abyss.

As a region, modern East Asia is the hub of global economic activity when it was once divided by various European imperial powers. After an initial focus on North-East Asia, post-Brexit Britain may soon consider building on its links with South-East Asia.

Of the 10 ASEAN countries, four had been part of the British Empire with three of them in the Commonwealth today. Other ASEAN members such as Thailand have also had centuries-old trade with Britain.

However, in upgrading its ties in this region, Britain should avoid the mistake of France in the 1990s.Depending narrowly on nostalgia in the Francophone countries of Indochina to boost its regional influence, Paris found itself irrelevant as the rapidly developing region passed it by.

During the Cold War, Soviet influence meant the older French-speaking generation had been replaced by Russian, then later German speakers, with technical training sourced in East Germany. Few Francophiles have survived.

Today, the CLMV countries are more interested in learning English for better progress in a globalised world. Meanwhile, the US “pivot” focuses on militarism rather than economics.

In the colonial era Britain led Europe in carving out the largest expanse of overseas territories and possessions. More recently, it again led Europe in signing on as a founding member of the China-led Asian Infrastructure Investment Bank (AIIB).

Now, Britain has struck out again on its own to exit the EU, whether or not other member nations follow. The impulse remains to act distinctly and uniquely based on its perceptions of its best interests.

A “Brivot” to Asia may now be in order for Britain. As with Brexit’s concern over immigration, it is about exploring new vistas, not shunning contemporaries by retreating into the past.

Through the AIIB and later One Belt, One Road, Britain could be instrumental in forging vastly productive linkages between East Asia, South Asia, Central Asia and Europe.

That could help revitalise Europe in a way no EU country could have imagined. By then, Brexit would be fully vindicated.

Bunn Nagara is a Senior Fellow at the Institute of Strategic and International Studies (ISIS) Malaysia.

South China Sea dispute: where the world stands


June 14, 2016

South China Sea dispute: where the world stands

by Matthew Pennington

A case brought by the Philippines against China represents a diplomatic dilemma for far-flung nations as Washington and Beijing rally support for their respective positions on the use of international arbitration in South China Sea disputes.

The United States has been building diplomatic pressure in the West and in Asia on China to abide by the Hague-based tribunal’s decision, which is expected soon. China, which maintains it won’t be bound by the ruling, has been pushing back by building support from nations mostly in Africa and the Mideast.

The US is not a party to the UN Convention on the Law of the Sea, under which the tribunal has been constituted, but says it wants China to play by international rules. Since there is no enforcement mechanism for the ruling, any impact will depend on how the international community reacts.

Here’s a look at where dozens of countries stand:

Association of Southeast Asian Nations (ASEAN)

ASEAN has been trying for years to achieve diplomatic solutions in the South China Sea, making little progress and exposing divisions in the 10-member bloc, which includes the Philippines. Reaching consensus on the Permanent Court of Arbitration ruling will be tough.

When President Barack Obama met ASEAN leaders in February they agreed on “full respect for legal and diplomatic processes” in accordance with the UN convention, but pro-China members Cambodia and Laos nixed any mention of “arbitration.”

Vietnam, which has fought China over competing South China Sea claims, has been most supportive of the Philippines’ case and submitted a statement to the tribunal. Hanoi has said it supports “full compliance” to the procedures of the convention.

But other ASEAN nations are generally wary of speaking out for fear of alienating China, the region’s economic heavyweight. Malaysia and Brunei have said little about the case, though they too are South China Sea claimants.

Indonesia and Singapore are not claimants but have been a bit more outspoken. Singapore’s Foreign Minister Vivian Balakrishnan said last week that the ruling could have implications beyond the South China Sea and “we cannot subscribe to the principle that might is right.” Indonesia’s Foreign Ministry declined to say whether the ruling should be binding on both sides but said international law must be respected.

Even the Philippines’ position is unpredictable as a new government takes office there June 30. President-elect Rodrigo Duterte has expressed willingness to restart bilateral negotiations with China.

Russia

Moscow, which shares China’s suspicion of Washington, is Beijing’s most prominent supporter on the issue. On a visit to China in April, Russian Foreign Minister Sergey Lavrov said Russia is against any interference from outside parties in the South China Sea – a reference to the US – “or any attempts to internationalise these disputes.” Like China, Russia says disputes should be resolved through talks between the parties directly involved.

China supporters In Africa, Mideast

China’s state news agency Xinhua on May 20 said that more than 40 countries have expressed support for China’s stance on the arbitration case. The Foreign Ministry has in recent weeks given prominent mention to support it claims to have from nations principally in Africa, the Mideast and Central Asia. But few of those foreign governments have issued statements independently. Some, including Cambodia, Laos and Fiji, have disavowed China’s description of their position.

Experts at the Centre for Strategic and International Studies in Washington said they could confirm official statements from Afghanistan, Gambia, Niger, Sudan and Vanuatu. A Chinese statement with the 21-member Arab League supported China but it was unclear if it represented all the parties’ official positions.

European Union and G-7

The EU has urged all South China Sea claimants to resolve disputes through peaceful means and “pursue them in accordance with international law,” including the UN convention. The Group of Seven wealthy nations, which comprises Britain, Canada, France, Germany, Italy, Japan, the US and the EU, has called on all states to fully implement decisions binding on them in courts and tribunals provided under the convention.

In June, French Defence Minister Jean-Yves Le Drian proposed that European navies coordinate patrols in Asian waters to reinforce a rules-based maritime order. He warned that if the laws of the sea are not respected in that region, they could also be challenged in the Arctic Ocean or Mediterranean Sea.

Australia

In January, Foreign Minister Julie Bishop said the China-Philippines ruling will be “extremely important” as a statement of international principle and will “settle once and for all” whether artificial reefs are entitled to territorial waters. But Australia has been less outspoken in support of arbitration than the US, perhaps mindful of Australia’s own resistance to arbitration to resolve its disputed maritime border with tiny East Timor.

India

India has not issued a categorical position on arbitration case, but has been broadly supportive of the application of international law. India shares US concerns about Beijing’s rising ambitions in the seas of Asia.

India’s External Affairs Ministry says that “all countries must abide by international law and norms on maritime issues.” India set an example in 2014 when it accepted a decision by the Hague-based Permanent Court of Arbitration that ruled in favour of Bangladesh in a dispute over the countries’ maritime boundary.

Japan

Japan was an early supporter of the Philippines’ pursuit of arbitration and says both China and the Philippines should abide by the outcome. Japan sees that as upholding international law, but it also reflects concern that historic rival China seeks strategic control of vital sea lanes in the South China Sea that carry 80 per cent of Japan’s crude oil imports.

Japan’s support of third-party dispute resolution is not universal. While it has sought to take its dispute with South Korea over the South Korean-held Dokdo or Takeshima islands to the International Court of Justice, it says no such action is needed in its dispute with China over the Senkaku or Diaoyu islands, which are administered by Japan.

South Korea

Like Japan, South Korea is heavily dependent on fuel imports that pass through the South China Sea, but it has closer ties with China and has been less inclined to speak out. The Foreign Ministry says South China Sea disputes should be resolved under internationally established regulations and that it is “looking with interest” at the Philippine-China arbitration case.

Taiwan

Taiwan has complained that the tribunal has not solicited its views. While Taipei officially exercises the same nine-dash line claim as Beijing in the South China Sea, it is primarily concerned about Taiping island in the Spratlys. Taiwan administers that remote land feature and is concerned it could be designated as a rock without the rights granted to islands.

AP

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Morning After: Australia, Japan, and the Submarine Deal that Wasn’t


June 8, 2016

Asia Pacific Bulletin

Number 346 | June 7, 2016
ANALYSIS

The Morning After: Australia, Japan, and the Submarine Deal that Wasn’t

by Nick Bisley and H. D. P. Envall

Barely had the visiting Japanese submarine, JS Hakuryu, departed Sydney Harbour on 26 April than Australian Prime Minister Malcolm Turnbull announced to the media that Australia’s future submarines would be built by the French contractor, DCNS Group. A week prior to Turnbull’s announcement, the news that Japan had finished last in the tender process began to leak from the Cabinet’s National Security Committee. Japan’s Defense Minister Gen Nakatani expressed “immense disappointment” at the decision and said that he would be seeking an explanation.

Australia’s experience in replacing the Collins submarines, which are set to be mothballed over coming decades, has been a story of serial missteps — bureaucratic, political, and diplomatic. Initially, the new submarines were to be designed in Australia and built in Adelaide, South Australia. Prior to the 2007 election, then Defence Minister Brendan Nelson announced that you could “bet London to brick” that, under a Liberal-National government, the submarines would be built in Adelaide. This persisted through two Defence White Papers and the 2013 national election. In 2009, the Labor government led by Kevin Rudd had announced its decision to acquire 12 next generation submarines.

These were “to be assembled” in South Australia, with the design and construction to “be undertaken without delay,” although the huge ambition of the project led some to describe it as akin to a moonshot. This goal was reconfirmed in 2012 and again in 2013 under the Labor government led by Julia Gillard.

Upon its election in late 2013 the Liberal-National government led by Tony Abbott appeared to be steering the program toward Japan. In keeping with its belief that government should not prop up industries that couldn’t stand on their own, the government began to pursue what came to be known as “Option J.” From mid-2014 intense media speculation had focused on the feasibility of Japan building a reconfigured version of its Soryu-class submarine. The idea was prompted by the remarkably close relationship that Abbott had established with Japanese Prime Minister Shinzo Abe and strong advocacy of Abbott’s senior national security adviser Andrew Shearer for a closer strategic link to Japan.

It was widely believed in Canberra that the two leaders had a “gentleman’s agreement” on the submarines. Australia would get cutting edge boats at a competitive price, Japan could begin to get into the lucrative business of international defense contracting, and it would cement the strategic ties between the two American allies. Submarines would consummate the “virtual” alliance. In August 2014 then Defence Minister David Johnston gave the first official hint of this when he refused to rule out any options regarding submarine acquisition. In November, he essentially said that the Australian Submarine Corporation (ASC) was not up to the task, rhetorically asking “you wonder why I wouldn’t trust them [ASC] to build a canoe?”

For reasons largely of poor diplomatic management, however, the two parties allowed their more aspirational hopes for a major strategic relationship to get ahead of the complex realities of the biggest defense acquisition in Australian history.

Australia’s domestic politics provided the first reality check for Option J. Abbott’s leadership had been questioned by his dire polling and in a suddenly called leadership challenge, he was desperate to get support from the Liberal members of parliament to ensure he remained party leader. The future submarine project had long been viewed as a much needed boost for the depressed South Australian economy. By raising the possibility of an overseas build, Abbott had exacerbated these problems.

South Australian Liberal politicians forced Abbott to give them something to take to their constituents in return for their support. This led to the hastily established “competitive evaluation process” that would open up the project to other bidders, including other international players. And it was here that things started to go awry. By some accounts, the Abbott people communicated to Japan that the “evaluation process” was essentially window-dressing and that the deal would still go their way provided they could build or at least assemble in South Australia. When Abbott was ousted by Turnbull, the personal commitment of the Prime Minister’s office was removed and the competitive process became a genuine competition.

The second reality check came as Option J’s strategic dimension was exposed to greater scrutiny. From the outset, key policy makers and analysts argued that the project should be decided on technical issues alone. Others pointed to the potential strategic risks of locking Australia into a long-term relationship with Japan and the implications of this for the country’s links with China. Whether this was a realistic fear was much debated in Australia, even as the question of whether the deal offered any substantial strategic benefits was mostly overlooked. Indeed, it remains unclear what strategic benefits a submarine tie-up would bring Australia beyond those already delivered by the two countries’ current strategic partnership.

Ultimately, the Australian government determined that the Japanese bid was not competitive on technical grounds. These related both to questions about submarine specifics and to serious concerns about Japan’s lack of experience on such projects, a fear that Japan’s approach to the tendering process seemed to confirm. Nor was it confident, if media reports are to be believed, that the Japanese government (outside leadership circles) was itself especially enthusiastic about the project.

So, if the submarine deal was too much of a wild night out for Australia and Japan, what can be expected of bilateral relations the morning after? To the extent that the strategic partnership has lost some momentum, this has occurred largely through Australian clumsiness, which has been distinguished by procrastination, vacillation and some incautious diplomacy. Indeed, Japan’s lack of enthusiasm reflected division with the country’s defense industry as well as a late realization that, on such a big, politically fraught project, Australia might not be the ideal customer.

Over the longer run, the partnership is unlikely to suffer greatly. Their strategic closeness of recent years has been prompted by the growing alignment of their strategic interests, something which has been strengthened by China’s aggressive approach to regional diplomacy. Both countries also continue to share close relations with the US through their respective alliances.

Where the two differ is in the immediacy of their strategic circumstances: these are more acute for Japan, given its territorial dispute with China, meaning that its need to cultivate strategic partners beyond the US is greater than Australia’s. This offers Australia something of a bargaining advantage in their emerging partnership and suggests that Japan, with few suitable alternatives, will likely persist in cultivating the relationship. Moreover, Australia’s decision to boost its submarine capabilities is very much in Japan’s strategic interests, regardless of the supplier. Accordingly, although both countries may be feeling somewhat seedy at present, the hangover should not last too long.

About the Author

Nick Bisley is Professor of International Relations and Executive Director of La Trobe Asia at La Trobe University, Melbourne. He can be contacted at n.bisley@latrobe.edu.au. H. D. P. (David) Envall is a Research Fellow in the Coral Bell School of Asia Pacific Affairs at The Australian National University, Canberra, and an honorary associate at La Trobe University. He can be contacted at david.envall@anu.edu.au.

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